Demand for variable rate loans on the rise in August

The Reserve Bank’s decision last month to cut the cash rate prompted a growing number of borrowers to take advantage of the current low interest rate environment by choosing both standard and basic variable rate home loans, national new home loan approval figures from Mortgage Choice show.

Basic variable rate loans amounted to 12.64% of all new home loans by the broker in the month, up from 10.99% in July. Standard variable rate loans also rose to 16.51%, up from 14.94% in July and up from 12.36% in June this year.

“With the official cash rate at an all-time low after the cash rate cut in August, and talk of at least one more cut this year, borrowers appear to be taking advantage of recent sharp variable rate pricing,’’ Mortgage Choice spokesperson, Melissa McCarney said.

“This increase in demand for both basic and standard variable rate loans may be driven by borrowers seeking loan options with no annual fee, which is the case with basic and standard variable loans, but not so with other loan types like ongoing discount loans.”

Ongoing discount rate loans are still popular with borrowers, but they lost favour slightly last month, falling by 2.08 percentage points to 37.47%.

Demand for fixed rate loans fell for the third month to 27.86% at a national level, but at a state level both NSW and Victoria had rises in demand for this loan type. Preferences for fixed rates in NSW jumped from 30.76% in July to 32.67% in August, while Victoria grew from 15.32% in July to 18.79% this month.

“It seems borrowers in both NSW and Victoria are keen to lock in rates now rather than banking on a further official cash rate cut in the months to come. For these borrowers the security of a fixed rate home loan may be more appealing than the flexibility and features offered by variable rate loans,” McCarney said.